European Bond Yields 12/30/11

Here is a check on the bond yields as 2011 comes to an end. This tally will serve as the start of year basis for 2012.

10-Year Yields:
Greece 34.85%
Portugal 13.43%
Italy 7.07%
Spain 5.15%
Belgium 4.08%
Australia 3.67%
France 3.14%
U.K. 1.94%
U.S. 1.90%
Germany 1.84%
Japan 0.99%

Greece and Portugal have already received bailouts and more money will be needed.  Italy is the elephant in the room with a mountain of debt coming due between now and March. Thus, many traders are sour on the beginning of the year since this trouble hits the fan.  Europe has kicked the can down the road for the last couple years but the road ends now. Tangible decisions are now required by the Euro countries. There is a hope that China and other emerging nations will help Europe but chances are they will turn internally and worry about their own skin. Keystone is looking for deflation as a trigger in Europe to allow the ECB to act forcefully to handle the debt crisis, just as Chairman Bernanke and the Fed will use deflation as their trigger point to announce QE3 in 2012.

The coming S&P downgrade of France debt is the first drama that will occur in 2012 in concert with the ECB rate decision and press conference early January. If the S&P Friday night release method is followed, potential targets for the France downgrade announcement are 1/6/12 or 1/13/12 with the latter the strong choice. A one notch downgrade of France is currently being priced into the equities markets so a two-notch downgrade, or Germany warning or downgrade, or other news, will surprise the markets and cause global equity selling.

Note that the Italy 10-year is above 7%. France is now above 3.1%. Belgium is staying above 4%. Use the 7% level for Italy, 6% level for Spain and 3.3% level for France as signals of trouble. Italy tells you that the debt crisis remains sick. France creeping up is a big worry.  The U.S., U.K. and Germany all finish below 2% since money is flowing into these nations to seek safety.